The state says Orange Beach City Schools owes it $4.6 million for the new city system's shortfall in the state foundation's 10-mill match funding program, according to documents obtained by Gulf Coast Media.

A June 30 letter from Alabama Superintendent of Education Eric Mackey to the Orange Beach Board of  Education details the scenario.

“OBCS’s required 10-mill match to the Foundation Program has already been allotted in the total statewide FY23 Foundation Program budget,” Mackey said in his letter to Orange Beach Board of Education’s lawyer, Nash Campbell.

“Because, as stated in your letter, the required match exceeds the total Foundation Program allocation earned by OBCS and in order to keep the Foundation Program funding balance for statewide school funding solvent, OBCS will need to remit $4,679,674 to the state.”

State education foundation funding works by assessing how much money the state sends to school districts based on a number of factors, but the main one is average daily membership (ADM). Once that figure is determined, the state deducts the equivalent of 10 mills of property tax from that total, and the school districts gets what’s left.

For example, Baldwin County schools qualified for $204.5 million from the state after the Orange Beach split based on ADM and those other factors. After $34.7 million — the equivalent of 10 mills of property tax in Baldwin County — is deducted, the county would be left with $160.5 million.

Orange Beach is upside down in this funding formula. The newly formed city school district has less students attending, but they're coming from homes with higher property values than other districts. Because of their small size, the district qualifies for only $7 million in foundation funding, but 10 mills of property tax in the high-dollar resort district equals $11.7 million. That difference results in the deficit of $4.6 million the state says it is owed from Orange Beach.

According to the letter, the money would be due on Oct. 1, 2023. Gulf Coast Media obtained several letters between the state and Orange Beach officials regarding the funding deficit, including a Sept. 30 letter from Orange Beach Superintendent Randy Wilkes. In it, he contends the city system is meeting the obligations of the match with the overwhelming local funding the district is receiving.

“As to when OBCS will need to remit funds to the state, no payments would need to be made prior to October 2023,” Mackey wrote. “Indeed, considering OBCS’s request and other financial needs, the department would be amenable to the possibility of a payment schedule should OBCS request.”

Mackey’s letter was in response to a June 15 letter from Campbell, the school board's lawyer, essentially

telling Mackey he had the authority to dismiss Orange Beach from the Foundation Program. He based his opinion on a review of foundation funding by expert Dr. Ira Harvey asking him if Orange Beach would be required to pay and “based on the plain language of the statute and Dr. Harvey’s extensive opinion, the answer is ‘no.’”

“The state superintendent having such authority with the need for legislative action is the key to this situation,” Campbell went on to say. “You, as the state superintendent, have statutory authority to decide this issue without interference.”

Mackey replied that there is no such provision in the foundation funding law giving the superintendent  authority to dismiss a system from the foundation program regarding the 10-mill match. The foundation legislation was first passed in 1995.

“While it is agreed that the state superintendent possesses exceptional latitude and legal authority as provided by law, in reading the founding program law, no authority in the law exists on the part of the state superintendent or any other officer of the state to waive participation in the foundation program,” Mackey wrote.

Mackey did offer somewhat of a remedy saying, “a waiver can only be enacted by the state legislature.”
The 2023 legislative session will end months before the $4.6 million is due from Orange Beach to the  Alabama Department of Education’s foundation program.

It was previously reported the amount the city system would owe was $6.7 million for the 10-mill match shortfall based on being due $5 million, which was well short of the $11.7 million 10- mills of property tax in the new school district.

Mackey offered numbers in his June 30 letter saying the city system was due $7 million and the match again would be $11.7 million leaving the shortfall of $4.6 million.

It was not immediately clear what would happen if the deficit is not paid.

Orange Beach City Schools Superintendent Randy Wilkes did not respond Monday for requests to comment.